NOTE 8 – INCOME TAXES

A reconciliation of the differences between the effective income tax rates and the statutory federal tax rates for the years ended December 31, 2018 and 2017 (computed by applying the U.S. Federal corporate tax rate of 34 percent to the loss before taxes) is as follows:

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities for the years ended December 31, 2018 and 2017 consisted of the following:

At December 31, 2018 and 2017, the Company had net deferred tax assets of $1,924,010 and $1,433,888 principally arising from net operating loss carry-forwards for income tax purposes (“NOLs”). As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at December 31, 2018 and 2017. At December 31, 2018, the Company has net operating loss carry forwards totaling $7,221,095, which will begin to expire in 2034. The Company is delinquent in filing its federal tax returns for several of the previous year periods since inception. Therefore, all tax years since the Company’s inception remain open for examination. Management has retained a tax professional to assist in bringing these filings current.

The Tax Cut and Jobs Act which was enacted on December 22, 2017 reduced the federal corporate income tax rate from a maximum of 35% to a flat 21%. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. Additionally, SAB 118 allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Because the Company is still in the process of analyzing certain provisions of the Tax Act, the Company has determined that the adjustment to its deferred taxes is a provisional amount as permitted under SAB 118. Due to the reduction of the federal corporate income tax rate the Company reduced the value of its net deferred tax asset in 2017 by approximately $695,000. This amount was offset by a corresponding change to the valuation allowance against the net deferred tax assets.

The Company’s NOL and tax credit carryovers may be significantly limited under the Internal Revenue Code (“IRC”). NOL and tax credit carryovers are limited under Section 382 when there is a significant “ownership change” as defined in the IRC. During the year ended December 31, 2018 and in prior years, the Company may have experienced such ownership changes, which could impose such limitations.

The limitations imposed by the IRC would place an annual limitation on the amount of NOL and tax credit carryovers that can be utilized. When the Company completes the necessary studies, the amount of NOL carryovers available may be reduced significantly. However, since the valuation allowance fully reserves for all available carryovers, the effect of the reduction would be offset by a reduction in the valuation allowance.