| 7. | INCOME TAXES |
The Company adopted the provisions of ASC 740, "Income Taxes", ("ASC 740").As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liability for unrecognized income tax benefits.The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed.Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet.Included in any liability for uncertain tax positions, the Company will also setup a liability for interest and penalties.The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.
There is no U.S. tax provision due to losses during the years ended December 31, 2016 and 2015.Deferred income taxes are provided for the temporary differences between the financial reporting and tax basis of the Company's assets and liabilities. The principal item giving rise to deferred taxes is the net operating loss carryforward. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.The Company has set up a valuation allowance for losses for certain carryforwards that it believes may not be realized.
The provision for income taxes consist of the following:
| Years Ended December 31, | |||||||||
| 2016 | 2015 | ||||||||
| Current | |||||||||
| Federal | $ | - | $ | - | |||||
| Foreign | - | - | |||||||
| - | - | ||||||||
| Deferred | |||||||||
| Federal | - | - | |||||||
| Foreign | - | - | |||||||
| $ | - | $ | - | ||||||
A reconciliation of taxes on income computed at the federal statutory rate to amounts provided is as follows:
| 2016 | 2015 | ||||||||
| Book income (loss) from operations | $ | (1,020,268 | ) | $ | (280,786 | ) | |||
| Common stock issued for services | 8,160 | 39,440 | |||||||
| Warrants issued for services | 390,912 | 184,674 | |||||||
| Impairment expense | 116,702 | ||||||||
| Change in valuation allowance | 504,494 | 56,672 | |||||||
| Income tax expense | $ | - | $ | - | |||||
As of December 31, 2016, the Company recorded a deferred tax asset associated with a net operating loss (“NOL”) carryforward of approximately $5.0 million that was fully offset by a valuation allowance due to the determination that it was more likely than not that the Company would be unable to utilize those benefits in the foreseeable future. The Company’s NOL expires in 2033. The valuation allowance increased by approximately $504,000 during the year ended December 31, 2016.
The types of temporary differences between tax basis of assets and liabilities and their financial reporting amounts that give rise to the deferred tax liability and deferred tax asset and their approximate tax effects are as follows:
| 2016 | 2015 | ||||||||
| Net operating loss carry forwards (expire through 2033) | $ | (4,013,799 | ) | $ | (2,993,531 | ) | |||
| Common stock issued for services | 64,995 | 56,835 | |||||||
| Warrants issued for services | 731,902 | 340,990 | |||||||
| Impairment expense | 1,950,067 | 1,833,385 | |||||||
| Total gross deferred tax asset/liabilities | (1,266,835 | ) | (762,321 | ) | |||||
| Valuation allowance | 1,266,835 | 762,321 | |||||||
| Net deferred taxes | $ | - | $ | - | |||||
Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on the availability of NOL carryforwards to offset taxable income when an ownership change occurs.The Company's reverse capitalization meets the definition of an ownership change and some of the NOL's will be limited.