Annual report pursuant to Section 13 and 15(d)

14. INCOME TAXES

v3.7.0.1
14. INCOME TAXES
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. The Company periodically assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits. As of December 31, 2016 and 2015, the Company established valuation allowances equal to the full amount of its deferred tax assets due to the uncertainty of the utilization of the net operating losses in future periods.

 

    2016     2015  
             
Deferred tax assets:                
Net operating loss carryforwards   $ 5,061,830     $ 2,317,485  
Business credit carryforwards     80,551       58,829  
Bad debt expense     39,834       1,125,787  
Intangible assets     1,742,639       479,565  
Stock-based compensation     579,970       163,938  
Unrealized capital loss     16,870       16,870  
Inventory reserve     1,419,084       –  
Other     44,410       29,648  
      8,985,188       4,192,122  
Deferred tax liabilities:                
Depreciation     (18,052 )     (62,828 )
CanX intangible assets     (1,556,300 )     (1,556,300 )
      (1,574,352 )     (1,619,128 )
Valuation allowance     (8,967,136 )     (4,129,294 )
Net deferred tax liabilities   $ (1,556,300 )   $ (1,556,300 )

 

The valuation allowance increased $4,837,842 and $2,618,766 for years ended December 31, 2016 and 2015, respectively.

 

At December 31, 2016, the Company has Federal and state net operating loss (“NOL”) carryforwards of approximately $12,691,000 and $12,802,000, respectively, which are available to offset future taxable income and which begin to expire in 2024. These loss carryforwards will likely be further limited pursuant to Internal Revenue Code Section 382 due to the change in control.

 

The differences between the expected income tax benefit and the actual recorded income tax benefit computed using a statutory federal rate of 34% is as follows for the years ended December 31,

 

      2016       2015  
                 
Income tax benefit at statutory rate   $ (4,808,041 )   $ (4,119,076 )
State taxes     (732,064 )     (375,792 )
Stock-based compensation     553,832       1,686,065  
Amortization of derivative liability     180,430       –  
Amortization of discount on convertible note     (50,048 )     195,207  
Permanent differences     3,951       (5,170 )
Other     –       –  
Change in valuation allowance     4,851,940       2,618,766  
Total provision   $ –     $ –