Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. The Company periodically assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits. As of December 31, 2017 and 2016, the Company established valuation allowances equal to the full amount of its deferred tax assets, net of certain tax liabilities, due to the uncertainty of the utilization of the net operating losses in future periods.

The valuation allowance decreased by $2,494,136 for the year ended December 31, 2017 and increased by $4,837,842 for the year ended December 31, 2016.

As of December 31, 2017, the Company has Federal and state net operating loss (“NOL”) carryforwards of approximately $12.9 million and $13.1 million, respectively, which are available to offset future taxable income and which begin to expire in 2033. These loss carryforwards will likely be further limited pursuant to Internal Revenue Code Section 382 due to the change in control. Under Section 382 of the Internal Revenue Code, a substantial change in the Company’s ownership may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income. The Company has not completed a study to determine whether a substantial change in ownership has occurred and, if so, the effect on its ability to utilize its NOL carryforwards. A valuation allowance has been recorded to fully reserve the potential benefits of these carryforwards as of December 31, 2017 and 2016. If it is determined that a substantial change in the Company’s ownership occurred in prior years, or if a substantial change in ownership occurs in the future, the Company’s ability to utilize its net operating loss carryforwards in any fiscal year may be significantly limited and the Company may be unable to fully utilize its net operating loss carryforwards prior to their expiration dates.

On December 22, 2017, U.S. tax legislation was enacted containing a broad range of tax reform provisions including a corporate tax rate reduction. The Company has not completed its accounting for the income tax effects of U.S. tax reform. However, the Company has made a reasonable estimate of the 2017 financial statement impact. Accordingly, the Company recorded a $481,500 net gain for the year ended December 31, 2017, to decrease deferred tax liabilities to reflect the reduction in the U.S. corporate tax rate from 34 percent to 21 percent beginning January 1, 2018. We are still analyzing certain aspects of the law and refining our calculations of basis differences as of December 31, 2017, which could affect the measurement of these balances. We will continue to update our calculations as additional required information is prepared and analyzed, interpretations and assumptions are refined, additional guidance is issued, and due to actions we may take as a result of the legislation. These updates could significantly impact the provision for income taxes, the amount of taxes payable, and the deferred tax asset and liability balances.

The differences between the expected income tax (expense) benefit and the actual recorded income tax benefit computed using a statutory federal rate of 34% as of December 31, 2017 and 34% as of December 31, 2016 is as detailed below: