NOTE 8 – 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. As of December 31, 2016, the Company has generated approximately $4,671,518 of net operating loss (“NOL”) carry forwards which will expire in the years 2024 and beyond. Internal Revenue Code section 382 (“Section 382”) restricts the use of these net operating losses in future periods if the Company has a “substantial change in ownership” as defined by Section 382. The Company has had significant equity transactions in both the current and prior periods. Due to this equity activity and the restrictions resulting under Section 382, most of the Company’s NOLs may not be available to offset future taxable income. The Company has fully reserved the deferred tax asset resulting from the net operating loss carry forwards.
Deferred tax asset consisted primarily of the following:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net operating loss carry forward | $ | 1,868,607 | $ | 1,504,114 | ||||
| Intangible Assets | 53,100 | - | ||||||
| Valuation allowance | $ | (1,921,707 | ) | $ | (1,504,114 | ) | ||
| Balance, end of year | $ | - | $ | - | ||||
Tax expense consisted primarily of the following:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Federal | $ | - | $ | - | ||||
| State | 2,159 | 1,719 | ||||||
| Deferred | - | - | ||||||
| Total | $ | 2,159 | $ | 1,719 | ||||
The Company’s tax expense does not reflect the statutory rate since the Company’s deferred tax asset is fully offset by a valuation allowance. The statute of limitations is open for the tax years ending December 31, 2013 and thereafter.