Note 12—INCOME TAXES
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During 2015 and 2016, the company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $11,255,000 at December 31, 2016, and will expire in the years 2032 – 2034.
Internal Revenue Section 382 restricts the ability to use these carryforwards whenever an ownership change as defined occurs. A change in ownership may be deemed to have occurred, which may limit the net operating loss carry forward value pursuant to Section 382 of the Tax Code.
| At December 31, 2016, deferred tax assets consisted of the following: | ||
| Deferred tax assets |
| |
| Net operating losses | $ | 4,389,477 |
| Less: valuation allowance |
| (4,389,477) |
| Net deferred tax asset | $ | - |
| At December 31, 2015, deferred tax assets consisted of the following: | ||
|
|
|
|
| Deferred tax assets |
| |
| Net operating losses | $ | 3,171,007 |
| Less: valuation allowance |
| (3,171,007) |
| Net deferred tax asset | $ | - |
A reconciliation of the U.S. Federal statutory tax rate to our annual tax rate is as follows:
|
|
| 2016 |
|
| 2015 |
| ||
|
|
|
|
|
|
|
|
|
|
| U.S. Federal statutory tax rate |
|
| 35.0 | % |
|
| 35.0 | % |
| State income tax, net of U.S. Federal tax benefit |
|
| 6.5 | % |
|
| 6.5 | % |
| Change in valuation allowance |
|
| (41.5 | %) |
|
| (41.5 | %) |
| Annual tax rate |
|
| 0.0 | % |
|
| 0.0 | % |