Note 8 – Deferred Tax Assets and Income Tax Provision
The Company had no income tax expense due to operating loss incurred for the years ended December 31, 2016 and 2015.
The tax effects of temporary differences and tax losses and credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at December 31, 2016 and 2015 are comprised of the following (dollars in thousands):
| As of December 31, | ||||||||
| 2016 | 2015 | |||||||
| Deferred tax assets: | ||||||||
| Net-operating loss carryforward | $ | 1,196 | $ | 342 | ||||
| Stock based compensation | 1,043 | 431 | ||||||
| Total Deferred Tax Assets | 2,239 | 773 | ||||||
| Valuation allowance | (2,239 | ) | (773 | ) | ||||
| Deferred Tax Asset, Net of Allowance | $ | - | $ | - | ||||
| For the year ended | ||||||||
| 2016 | 2015 | |||||||
| Federal | ||||||||
| Current | $ | - | $ | - | ||||
| Deferred | 1,251 | 643 | ||||||
| State | ||||||||
| Current | - | - | ||||||
| Deferred | 215 | 110 | ||||||
| Change in Valuation Allowance | (1,466 | ) | (753 | ) | ||||
| Income Tax Provision (Benefit) | $ | - | - | |||||
At December 31, 2016, the Company had net operating loss carry forwards for federal and state tax purposes of approximately $3.1 million which expires beginning in 2036. The Company has not performed a detailed analysis to determine whether an ownership change under Section 382 of the IRC has occurred. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change. Any limitation may result in expiration of all, or a portion of the NOL or potential research and development credit carryforwards before utilization.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. In case the deferred tax assets will not be realized in future periods, the Company has provided a valuation allowance for the full amount of the deferred tax assets at December 31, 2016. The valuation allowance increased by approximately $1.5 million and $753,000 for the years ended as of December 31, 2016 and 2015, respectively.
The expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:
| For the years ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Statutory Federal Income Tax Rate | (34.0 | )% | (34.0 | )% | ||||
| State Taxes, Net of Federal Tax Benefit | (5.8 | )% | (5.8 | )% | ||||
| Change in Valuation Allowance | 39.8 | % | 39.8 | % | ||||
| Income Taxes Provision (Benefit) | 0.0 | % | 0.0 | % | ||||
The Company has not identified any uncertain tax positions requiring a reserve as of December 31, 2016.
The Company is in the process of preparing historical federal and state tax returns. Therefore, the Company’s net operating loss carryovers will not be available to offset future taxable income, if any, until the tax returns are filed.