10.

Income Taxes

The Company’s provision (benefit) for income taxes consists of the following for the year ended December 31, 2017 and 2016:

	2017			2016
Deferred:
Federal	$	2,126,062		$	(475,316	)
State and local		200,294			(419,247	)
Total deferred		2,326,356			(894,563	)
Total provision (benefit) for income taxes		2,326,356			(894,563	)
Less: valuation reserve		(2,326,356	)		894,563
Income tax provision	$	-		$	-

A reconciliation of the federal statutory rate to 0% for the year ended December 31, 2017 and 2016 to the effective rate for income from operations before income taxes is as follows:

	2017			2016

Benefit for income taxes at federal statutory rate		34.0	%		34.0	%
State and local income taxes, net of federal benefit		7.4			7.8
Differences attributable to the Tax and Jobs Cut Act		(32.0	)		-
Differences attributable to change in state business apportionment		(4.7	)		12.3
Reorganization expenses		-			(6.0	)
Loss on debt conversion		(9.1	)		-
Amortization of intangible assets		-			(6.2	)
Prior year adjustment of taxes		(47.1	)		3.4
Other		(0.1	)		0.1
Less valuation allowance		51.6			(45.4	)
Effective income tax rate		0.0	%		0.0	%

During 2017, the Company adjusted its estimate of business apportionment, thus decreasing its effective state and local tax rate from 7.8% to 7.4%. The decrease is primarily due to allocation of business receipts from New York State and New York City. In addition, the Company adjusted prior deferred tax balances for various items which were offset by the valuation allowance.

The tax effects of these temporary differences along with the net operating losses, net of an allowance for credits, have been recognized as deferred tax assets (liabilities) at December 31, 2017 and 2016 as follows:

	2017			2016
Net operating loss carryforward	$	3,738,980		$	5,256,605
Bad debt reserve		9,709			141,182
Employee stock compensation		255,322			78,652
Net conversion feature discount		-			(5,208	)
Intangible assets		(858,811	)		-
Depreciation		2,567			2,782
Charity		234			344
Net deferred tax asset		3,148,001			5,474,357
Valuation allowance		(3,148,001	)		(5,474,357	)

Net deferred tax asset	$	-		$	-

The Company establishes a valuation allowance, if based on the weight of available evidence; it is more likely than not that some portion or all of the deferred assets will not be realized. The valuation allowance increased (decreased) by $(2,326,356) and $894,563 during 2017 and 2016, respectively, offsetting the increase in the deferred tax asset attributable to the net operating loss and reserves.

As of December 31, 2017, the Company had a net operating loss carryforward of approximately $13,100,000 for Federal tax purposes. The net operating loss expires through 2037. The Company’s net operating loss carryforward may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.

As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

On December 22, 2017, the Tax Cuts and Jobs Act (“2017 Tax Act”) was enacted, which among numerous other provisions, reduced the federal statutory corporate tax rate from 34% to 21%. Based on the provisions of the 2017 Tax Act, the Company re-measured its deferred tax assets and liabilities and adjusted its estimated annual effective income tax rate to incorporate the lower federal corporate tax rate into the tax provision for the year ended December 31, 2017.

The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expenses. As of December 31, 2017, the Company has no unrecognized tax positions, including interest and penalties. The tax years 2014 - 2016 are still open to examination by the major tax jurisdictions in which the Company operates. The Company files returns in the United States Federal tax jurisdiction and various other state jurisdictions.