Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Note 9. Income Taxes

The Company accounts for its deferred tax assets and liabilities, including excess tax benefits of share-based payments, based on the tax ordering of deductions to be used on its tax returns. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities is as follows:

	December 31,		December 31,
	2017		2016
Deferred tax assets:
Net operating loss carry forwards	$	513,000	$	1,739,000
Deferred revenue		1,033,000		826,000
Non-qualified stock option expense		410,000		540,000
Investment in MREC		28,000		-
Reserves, accruals and other		93,000		133,000
Tax intangible assets and accumulated depreciation/amortization		634,000		1,187,000
Total deferred tax assets		2,711,000		4,425,000
Less: Valuation allowance		-		4,425,000
Net deferred tax assets	$	2,710,000	$	-

Prior to the fourth quarter of 2017, the company maintained a valuation allowance equal to the potential benefit of the net deferred tax assets as it was more likely than not that such assets would not be realized. During the fourth quarter of 2017, the Company re-evaluated the realization of its net deferred tax assets and determined that such assets were likely to be fully realized. As such, the Company reversed its previously recognized valuation allowance and recorded a related income tax benefit of $4,425,000

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S federal corporate tax rate from 35% to 21%. Accordingly, the Company has modified the value of the deferred tax assets and liabilities including the net operating loss carryover at December 31, 2017. Prior to enactment of the new tax reform, the Company had total net deferred tax assets of $4,086,910 at December 31, 2017. Taking the new tax reform into consideration, the total net deferred tax assets was $2,710,000 at December 31, 2017.

Internal Revenue Code Section 382 limits the ability to utilize net operating losses if a 50% change in ownership occurs over a three year period. Such limitation of the net operating losses may have occurred but we have not analyzed it at this time as the deferred tax asset is fully reserved. The Company believes it has approximately $2.4 million of federal net operating loss carry-forwards that are available to offset future taxable income that expire in various years through 2034. The state net operation loss carry-forward was fully utilized in the tax year 2015.

Significant components of the (provision) benefit for income tax as follows:

	December 31,			December 31,
	2017			2016
Current	$	205,000		$	103,000
Deferred		1,714,000			425,000
Change in valuation allowance		(4,425,000	)		(425,000	)
Provision for income taxes	$	(2,505,000	)	$	103,000

The Company is subject to federal and state taxes. A reconciliation of the Company’s effective income tax rate to the federal statutory rate is as follows:

	December 31,			December 31,
	2017			2016
Federal income tax benefit at the statutory rate	$	257,000		$	697,000
State income taxes, net of federal benefit		205,000			103,000
Permanent differences		20,000			(16,000	)
Tax return true-ups and other		61,000			(256,000	)
Change in federal income tax rates		1,376,000			-
Change in valuation allowance		(4,425,000	)		(425,000	)
Provision for income taxes	$	(2,505,000	)	$	103,000