Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes



The following table presents a reconciliation of the statutory Federal rate and the Company’s effective tax rate for the years ended December 31:


    2018     2017  
Tax provision (benefit) at Federal statutory rate     (21.00 )%     (34.00 )%
Accrued compensation     (0.28 )%     (0.32 )%
Stock based compensation     3.37 %     4.15 %
Depreciation and amortization     0.15 %     0.59 %
Other     0.07 %     0.26 %
Change in valuation allowance     17.69 %     29.32 %
Effective tax rate     0.00 %     0.00 %


The effective tax rate for the three and years ended December 31, 2018 and 2017, differs from the statutory rate of 21% and 34% for the years ended December 31, 2018 and 2017, respectively, as a result of state taxes (net of Federal benefit), permanent differences, and a reserve against deferred tax assets.


There was not a provision for income taxes for the years ended December 31, 2018 and 2017.


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 following table presents significant components of the Company’s deferred tax assets and liabilities for the years ended December 31:


    2018     2017  
DEFERRED TAX ASSETS, net:                
Net operating loss carryforwards   $ 9,633,893     $ 8,705,467  
Accrued compensation     1,080,432       1,074,903  
Stock based compensation     178,174       66,348  
Credit carryforwards     52,592       71,910  
Depreciation and amortization carryforwards     (63,917 )     (71,054 )
Total     10,881,174       9,847,574  
Less valuation allowance     (10,881,174 )     (9,847,574 )


As of December 31, 2018, the Company had a Federal net operating loss carryforward of $36,950,157. In addition, the Company had a net operating loss carryforward for Hawaii income tax purposes of $29,286,880 as of December 31, 2018. These amounts may be used to offset up to 80% of future taxable income and differ from the Company’s accumulated deficit due to permanent and temporary tax differences.


The Company’s valuation allowance was primarily related to the operating losses. The valuation allowance is determined in accordance with the provisions of ASC No. 740, Income Taxes, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance. Based on the available objective evidence and the Company’s history of losses, management provides no assurance that the net deferred tax assets will be realized. As of December 31, 2018 and 2017, the Company has applied a valuation allowance against its deferred tax assets net of the expected income from the reversal of the deferred tax liabilities.


Recent tax legislation


On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business, such as reducing the U.S. federal statutory tax rate. The TCJA reduces the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018.


As a result of TCJA, the Company recorded a change in its deferred tax asset of approximately, $3.8 million for the year ended December 31, 2017, which was offset by an adjustment to the allowance.


State tax credits


The Company received a refundable tax credit of $17,253 from the State of Hawaii during the year ended December 31, 2017. This amount is recorded as other income in the consolidated statement of operations.