Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 7 – 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, 2017 and 2016 (computed by applying the U.S. Federal corporate tax rate of 34 percent to the loss before taxes) is as follows:

 

    2017     2016  
Tax benefit at U.S. statutory rate   $ 924,190     $ 509,226  
State taxes, net of federal benefit     60,548        
Stock and stock based compensation     (80,291 )     (362,519 )
Change in fair value of convertible bridge notes and derivatives     (426,489 )     274,724  
Amortization of preferred stock discount     (42,552 )     (46,779 )
Gain on extinguishment of liabilities     155,285        
Change of U.S. federal rate     (695,021 )      
Other permanent differences     36,973       (24,877 )
Change in valuation allowance     67,357       (349,775 )
    $     $  

 

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, 2017 and 2016 consisted of the following:

 

    2017     2016  
Net operating loss carry-forward   $ 1,387,476     $ 1,410,055  
Deferred tax assets – accrued salaries           79,412  
Deferred tax assets – accrued interest     46,069       11,269  
Depreciation expense     343       509  
Net deferred tax assets     1,433,888       1,501,245  
Valuation allowance     (1,433,888 )     (1,501,245 )
Total net deferred tax asset   $     $  

 

At December 31, 2017 and 2016, the Company had net deferred tax assets of $1,433,888 and $1,501,245 principally arising from net operating loss carry-forwards for income tax purposes. 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, 2017 and 2016. At December 31, 2017, the Company has net operating loss carry forwards totaling $5,885,676, which will begin to expire in 2034.

 

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 has reduced the value of its net deferred tax asset 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, 2017 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.