Annual report pursuant to Section 13 and 15(d)

15. INCOME TAXES

v3.3.1.900
15. INCOME TAXES
 12 Months Ended
Dec. 31, 2015
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. At December 31, 2015 and 2014, 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.

 

    2015     2014  
Deferred tax assets:                
Net operating loss carryforwards   $ 2,317,485     $ 1,083,064  
Bad debt expense     1,125,787       39,834  
Intangible assets     479,565       310,548  
Stock-based compensation     163,938       128,703  
Other     105,347       33,596  
      4,192,122       1,595,745  
Deferred tax liabilities:                
Property and equipment     (62,828 )     (85,217 )
CanX intangible assets     (1,556,300 )     –  
      (1,619,128 )     (85,217 )
Valuation allowance     (4,129,294 )     (1,510,528 )
Net deferred tax liabilities   $ (1,556,300 )   $ –  

 

The valuation allowance increased $2,618,766 and $549,771 for years ended December 31, 2015 and 2014, respectively.

 

At December 31, 2015, the Company has Federal and state net operating loss (“NOL”) carryforwards of approximately $5,842,000 and $5,678,000, 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,

 

    2015     2014  
Income tax benefit at statutory rate   $ (4,119,076 )   $ (444,442 )
State taxes     (375,792 )     (94,475 )
Stock-based compensation     1,686,065       2,293,891  
Investment in KannaLife     –       (2,567,000 )
Amortization of discount on convertible note     195,207       200,421  
Permanent differences     (5,170 )     (8,114 )
Other     –       69,948  
Change in valuation allowance     2,618,766       549,771  
Total provision   $ –     $ –