NOTE 15 -  INCOME TAXES

 

Prior to January 26, 2016, Drone USA, LLC was a single member limited liability company. As such, the sole member of the Company is required to include the Company’s taxable income or loss on his individual income tax return. The Company recognizes deferred tax assets and liabilities for the tax effects of differences between the financial statement and tax basis of assets and liabilities. A valuation allowance is established to reduce the deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

 

As of September 30, 2017, the Company has net operating loss carryforwards of approximately $8,466,300 to reduce future taxable income through 2037. A valuation allowance for the entire deferred tax assets has been established as of September 30, 2017 and 2016.

 

The provision for (benefit from) income taxes consists of the following:

 

		Year Ended September 30, 2017			Year Ended September 30, 2016
Current
Federal		$	-		$	-
State			50			50
			50			50
Deferred
Federal			-			(371,000)
State			-			(89,570)
			-			(460,570)
Total income tax provision (benefit)		$	50		$	(460,520)

 

A reconciliation of the provision for income taxes at the federal statutory rate of 35% to the Company’s provision for income tax is as follows:

 

		Year Ended September 30, 2017			Year Ended September 30, 2016
U.S. Federal (tax benefit) provision at statutory rate		$	(2,739,427)		$	(2,243,836)
State (tax benefit) income taxes, net of federal benefit			(624,516)			(500,697)
Permanent differences			152,532			169,807
Changes in valuation allowance			3,211,461			2,114,206
Total		$	50		$	(460,520)

 

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 the significant components of the Company’s deferred tax assets and liabilities for the periods presented:

 

		September 30, 2017			September 30, 2016
Deferred Tax Assets
Stock-based compensation		$	1,986,087		$	1,984,035
Net operating losses			3,678,613			577,103
Other			-			7,242
Total deferred tax assets			5,664,700			2,568,380
Valuation allowance			(5,325,667)			(2,114,206)
Net deferred tax assets			339,033			454,173
Deferred Tax Liabilities
Identifiable intangibles - HowCo Purchase			(339,033)			(454,173)
Total deferred tax liabilities			(339,033)			(454,173)
Net deferred tax		$	-		$	-

 

The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. Due to the history of losses the Company has generated in the past, the Company believes that it is not more likely than not that all of the deferred tax assets in the U.S. can be realized as of September 30, 2017 and 2016, accordingly, the Company has recorded a full valuation allowance on its U.S. deferred tax assets.

 

The following table displays by contributing factor the changes in the valuation allowance for deferred tax assets since October 1. 2015:

 

		Year Ended September 30, 2017			Year Ended September 30, 2016
Balance - beginning of year		$	2,114,206		$	-
Net operating loss generated/(utilization, expiration)			3,101,510			577,103
Deferred tax assets decrease/(increase)			109,951			1,537,103
Balance - end of year		$	5,325,667		$	2,114,206

 

The Company files income tax returns in the United States on federal basis and various states. The Company is not currently under any international or any United States federal, state and local income tax examinations for any taxable years. All of the Company’s net operating losses are subject to tax authority adjustment upon examination.