Income Taxes

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

12. Income Taxes

The income tax provision (benefit) for the years ended December 31, 2016 and 2015 was as follows:

	Year Ended December 31,
	2016			2015
Federal:
Current	$	-		$	-
Deferred		(453,586	)		(269,394	)
State and local:
Current		-			-
Deferred		(53,684	)		(21,621	)
		(507,270	)		(291,015	)
Change in valuation allowance		507,270			291,015
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, 2016 and 2015 are as follows:

	December 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	6,098,963		$	5,585,989
Stock-based compensation		700,295			767,443
Inventory reserves		8,842			8,800
Allowance for bad debt		-			17,915
Deferred Revenue		3,318			2,575
Deferred Rent		-			9,824
Contingent Liability		-			1,910
Charitable contribution carryforwards		2,711			5,772
Accruals		104,397			22,491
Total deferred tax assets		6,918,526			6,422,719
Valuation allowance		(6,886,459	)		(6,379,189	)
Deferred tax assets, net of valuation allowance		32,067			43,530
Deferred tax liabilities:
Property and equipment		(32,599	)		(29,881	)
Web Development		532			(13,649	)
Deferred tax liabilities	$	(32,067	)	$	(43,530	)
Net deferred tax assets	$	-		$	-
Change in valuation allowance	$	502,270		$	291,015

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, 2016 and 2015.

The Company files income tax returns in the U.S. Federal jurisdiction and various state and local jurisdiction, and its federal, state and local income tax returns for the tax years beginning in 2012 remain subject to examination. The Company is in the process of filing its federal and state tax returns for the year ended December 31, 2016. The Net operating losses ("NOLs") for this year will not be available to reduce future taxable income until the returns are filed. Assuming these returns are filed, as of December 31, 2016 and 2015, the Company had $16,821,182 and $15,464,258, 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 2036. As of December 31, 2016 and 2015, the Company had approximately $9,494,025 and $8,137,101 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 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, 2016 and 2015, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows:

	Year Ended December 31,
	2016	2015
US federal statutory rate	(34.0%)		(34.0%)
State tax rate, net of federal benefit	(4.0%)		(4.0%)
Permanent differences:
Stock based compensation	2.5%		12.3%
Adjustments to prior deferred tax balances	(0.5%)		(20.7%)
Change in valuation allowance	36.0%		46.4%
Income tax provision (benefit)	0.0%		0.0%