Annual report pursuant to Section 13 and 15(d)

13. INCOME TAXES

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13. INCOME TAXES
 12 Months Ended
Dec. 31, 2014
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, 2014 and 2013, 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.

 

    2014     2013  
             
Deferred tax assets:                
Net operating loss carryforwards   $ 1,083,064     $ 466,161  
Allowance for doubtful accounts     39,834       159,338  
Intangible assets     310,548       141,730  
Investment in KannaLife Sciences     –       123,787  
Stock-based compensation     128,703       –  
Other     33,596       113,399  
      1,595,745       1,004,415  
                 
Deferred tax liabilities:                
Property and equipment     (85,217 )     (43,658 )
Total deferred tax assets     1,510,528       960,757  
Valuation allowance     (1,510,528 )     (960,757 )
Net deferred tax assets   $ –     $ –  

 

The valuation allowance increased $549,771 and $910,281 for years ended December 31, 2014 and 2013, respectively.

 

At December 31, 2014, the Company has Federal and state net operating loss (“NOL”) carryforwards of approximately $2,753,000 and $2,522,000, respectively, which are available to offset future taxable income and which begin to expire in 2023. 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,

 

    2014     2013  
             
Income tax benefit at statutory rate   $ (444,442 )   $ (782,067 )
State taxes     (94,475 )     (132,094 )
Stock-based compensation     2,293,891       –  
Investment in KannaLife Sciences     (2,567,000 )     –  
Amortization of discount on convertible note     200,421       3,880  
Permanent differences     (8,114 )     –  
Other     69,948       –  
Change in valuation allowance     549,771       910,281  
Total provision   $ –     $ –