NOTE 12 - INCOME TAXES
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
| As of December 31, | ||||||||
| Deferred tax assets: | 2016 | 2015 | ||||||
| Net operating loss carryovers | $ | 4,729,737 | $ | 3,739,799 | ||||
| Marketable securities | 23,473 | 23,298 | ||||||
| Accrued expenses | 91,925 | 91,526 | ||||||
| Deferred tax assets, gross | 4,845,135 | 3,854,623 | ||||||
| Less: valuation allowance | (1,578,784 | ) | (531,983 | ) | ||||
| Deferred tax assets, net | 3,266,351 | 3,322,640 | ||||||
| Deferred tax liabilities: | ||||||||
| Property and equipment | (7,329,681 | ) | (7,385,970 | ) | ||||
| Deferred tax assets (liabilities), net | $ | (4,063,330 | ) | $ | (4,063,330 | ) | ||
The change in the Company’s valuation allowance is as follows:
| For the Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Beginning of year | $ | 531,983 | $ | 5,197,981 | ||||
| (Decrease) increase in valuation allowance | 1,046,801 | (4,665,998 | ) | |||||
| End of year | $ | 1,578,784 | $ | 531,983 | ||||
A reconciliation of the provision for income taxes with the amounts computed by applying the statutory Federal income tax rate to income from operations before the provision for income taxes is as follows:
| For the Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| U.S. federal statutory rate | (34.0 | )% | (34.0 | )% | ||||
| State and foreign taxes | (3.2 | )% | (3.2 | )% | ||||
| Permanent differences | ||||||||
| Non-deductible expenses | 2.7 | % | 3.6 | % | ||||
| Valuation allowance | 48.1 | % | 33.6 | % | ||||
| True-up of prior year deferred tax assets | (13.6 | )% | 0 | % | ||||
| Effective income tax rate | 0.0 | % | 0.0 | % | ||||
The Company has net operating loss carryovers of approximately $12,717,346 for federal and state income tax purposes, which begin to expire in 2026. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company. Based on losses from inception, the Company determined that as of December 31, 2016 it is more likely than not that the Company will not realize benefits from the deferred tax assets. The Company will not record income tax benefits in the financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the deferred income tax assets. As a result of the analysis, the Company determined that a valuation allowance against the deferred tax assets was required of $1,578,784 and $531,983 as of December 31, 2016 and 2015, respectively.
Internal Revenue Code (“IRC”) Section 382 imposes limitations on the use of net operating loss carryovers when the stock ownership of one or more 5% stockholders (stockholders owning 5% or more of the Company’s outstanding capital stock) has increased on a cumulative basis over a period of three years by more than 50 percentage points. Management cannot control the ownership changes occurring. Accordingly, there is a risk of an ownership change beyond the control of the Company that could trigger a limitation of the use of the loss carryover. The Company has analyzed the issuances of shares of common stock during the years ended December 31, 2016 and 2015 and does not believe such change of control occurred. If such ownership change under IRC section 382 had occurred, such change would substantially limit the Company’s ability in the future to utilize its net operating loss carryforwards