Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 11 - INCOME TAXES

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. The Company establishes valuation allowances against its net deferred tax assets when it is more likely than not that the benefits will not be realized in the foreseeable future.

The components of deferred tax assets and liabilities consist of the following at December 31, 2020 and 2019:

	2020			2019
Assets:
Net operating loss carryforwards	$	1,937,626		$	2,255,880
Charitable Contribution Carryforward		797			780
Goodwill		287,878			294,822
Other Assets		45,453			48,878
Total Assets		2,271,754			2,600,360
Liabilities:
Depreciable Assets		45,177			4,847
Other Intangible Assets		923,224			973,073
Total Liabilities		968,401			977,920
Net Asset before Valuation allowance		1,303,353			1,622,440
Valuation allowance		(1,303,353	)		(1,622,440	)
Net deferred tax (liability) asset	$	-		$	-

A reconciliation between the Company’s effective income tax rate and the federal statutory income tax rate for the years ended December 31, 2020 and 2019 is as follows:

	2020			2019
Federal statutory income tax benefit		21.0	%		21.0	%
State income taxes, net of federal income tax benefit		-13.2	%		0.0	%
Permanent differences and other		0.9	%		-0.1	%
Change in valuation allowance		46.9	%		-14.8	%
Effect of flow through entity		-55.6	%		-6.1	%
Effective income tax rate		0.0	%		0.0	%

At December 31, 2020, the Company has United States federal net operating loss carryforwards available to reduce future taxable income in the amount of $8 million. Such net operating loss carryforwards are attributable to 704Games. $2.7 million of the Federal net operating losses do not expire due to changes made by the Tax Cuts and Jobs Act (TCJA). The remaining federal net operating losses of $5.3 million begin to expire in 2035 and the state net operating losses expire between 2030 and 2039. As a result of the 704Games acquisition during the 2018 tax year, certain pre-change federal and state net operating losses were limited under Section 382 of the Internal Revenue Code and were subject to a valuation allowance to the extent they are not expected to be realized in the foreseeable future.

In assessing whether the Company’s deferred tax assets will be realized, management considered whether it was more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the ability to generate future taxable income (including reversals of deferred tax liabilities) during periods in which temporary differences become deductible. A valuation allowance was recognized as of December 31, 2020, as management concluded that is not more likely than not that the Company will generate sufficient future income to utilize the NOL carryforward and realize the deferred tax assets.

The Company regularly assesses the likelihood of additional tax assessments by jurisdiction and, if necessary, adjusts its tax reserves based on new information or developments. The Company is not currently under any income tax audits or examinations, however, the tax years 2017-2020 remain open for examination.