Note 9 – Income Taxes

Due to the Company’s net losses, there were no provisions for income taxes for the years ended February 28, 2017 and February 29, 2016.

The difference between the income tax expense of zero shown in the statement of operations and pre-tax book net loss times the federal statutory rate of 35% is principally due to the change in the valuation allowance.

Deferred income tax assets for the years ended February 28, 2017 and February 29, 2016 are as follows:

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, management has applied a full valuation allowance against its net deferred tax assets at February 28, 2017 and February 29, 2016. The net change in the total valuation allowance from February 29, 2016 and February 28, 2017, was an increase of $629,562.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of February 28, 2017 and February 29, 2016, the Company did not have any significant uncertain tax positions or unrecognized tax benefits. The Company incurred interest expense $1,000 and $0 penalties was recognized for the years ended February 28, 2017, and there were no interest or penalty for February 29, 2016.

As of February 28, 2017, the Company has federal net operating loss carryforwards of approximately $2,186,440 for federal and state tax purposes, respectively, which if not utilized, will expire beginning in 2034, respectively, for both federal and state purposes.

Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as amended, as well as similar state provisions. In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain shareholders or public groups.

Due to the impact of temporary and permanent differences between the book and tax calculations of net loss, the Company experiences an effective tax rate above the federal statutory rate of 35%.