Annual report pursuant to Section 13 and 15(d)

10. INCOME TAXES

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10. INCOME TAXES
 12 Months Ended
Dec. 31, 2013
Income Taxes  
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. At December 31, 2013 and 2012, 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.

 

    2013     2012  
Deferred tax assets:                
Net operating loss carryforwards   $ 466,161     $ 50,476  
Allowance for doubtful accounts     159,338       –  
Intangible assets     141,730       –  
Investment in KannaLife Sciences     123,787       –  
Other     113,399       –  
      1,004,415       50,476  
Deferred tax liabilities:              
Property and equipment     (43,658 )     –  
Total deferred tax assets     960,757       50,476  
Valuation allowance     (960,757 )     (50,476 )
Net deferred tax assets   $  –     $ –  

  

The valuation allowance increased $910,281 and $50,476 for years ended December 31, 2013 and 2012 respectively.

 

At December 31, 2013, the Company has Federal and state net operating loss (“NOL”) carryforwards of approximately $1,184,000 and $1,092,000, respectively, which are available to offset future taxable income and which begin to expire in 2023. This 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,

 

    2013     2012  
Income tax benefit at statutory rate   $ (782,067 )   $ (15,694 )
State taxes     (132,094 )     –  
Permanent items   3,880     –  
Change in valuation allowance     910,281       15,694  
Total provision   $ –     $ –