Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes

12. Income Taxes

The income tax provision (benefit) for the years ended December 31, 2015 and 2014 was as follows:

	For The Year Ended
	December 31,
	2015			2014
Federal:
Current	$	-		$	-
Deferred		(269,394	)		(387,752	)
State and local:
Current		-			-
Deferred		(21,621	)		(161,244	)
		(291,015	)		(548,996	)
Change in valuation allowance		291,015			548,996
Income tax provision (benefit)	$	-		$	-

The effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2015 and 2014 are as follows:

	December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	5,585,989		$	5,315,823
Stock-based compensation		767,443			722,782
Inventory reserves		8,800			6,090
Allowance for bad debt		17,915			17,948
Deferred Revenue		2,575			-
Deferred Rent		9,824			14,108
Contingent Liability		1,910			1,910
Charitable contribution carryforwards		5,772			5,772
Accruals		22,491			31,007
Total deferred tax assets		6,422,719			6,115,440
Valuation allowance		(6,379,189	)		(6,088,174	)
Deferred tax assets, net of valuation allowance		43,530			27,266
Deferred tax liabilities:
Property and equipment		(29,881	)		(27,266	)
Web Development		(13,649	)		-
Deferred tax liabilities	$	(43,530	)	$	(27,266	)
Net deferred tax assets	$	-		$	-
Change in valuation allowance	$	291,015		$	548,996

The Company assesses the likelihood that deferred tax assets will be realized.  To the extent that realization is not likely, a valuation allowance is established.  Based upon the history of losses, management believes that it is more likely than not that future benefits of deferred tax assets will not be realized and has established a full valuation allowance for the years ended December 31, 2015 and 2014.

The Company is in the process of filing its federal and state tax returns for the years ended December 31, 2015 and 2014.  The Net operating losses (“NOLs”) for these years will not be available to reduce future taxable income until the returns are filed.  Assuming these returns are filed, as of December 31, 2015 and 2014, the Company had $15,470,633 and $14,736,276, respectively, of federal net operating loss carryforwards (“NOL’s”) that may be available to offset future taxable income.  The federal net operating loss carryforwards, if not utilized, will expire from 2027 to 2035.  As of December 31, 2015 and 2014, the Company had $8,149,352 and $7,637,237 of state net operating loss carryforwards available to offset future taxable income.  The state NOLs, if not utilized, will expire beginning in 2031.

In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s net operating loss carryforwards could be limited in the event of a change in ownership.  Based upon a study that analyzed the Company’s stock ownership, a change of ownership was deemed to have occurred in 2011.  This change of ownership created an annual limitation of approximately $2,116,000 on the usage of the Company’s losses which are available through 2031.  A full Section 382 analysis has not been prepared since 2011 and any NOLs arising since 2011 could be subject to limitation under Section 382.

For the years ended December 31, 2015 and 2014, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows:

	For The Year Ended
	December 31,
	2015			2014
US federal statutory rate		(34.0	%)		(34.0	%)
State tax rate, net of federal benefit		(4.0	%)		(4.0	%)
Permanent differences
- Stock based compensation		12.3	%		4.8	%
- Adjustments to prior deferred tax balances		(20.7	%)		2.4	%
Change in valuation allowance		46.4	%		30.8	%
Income tax provision (benefit)		0.0	%		0.0	%