Annual report pursuant to Section 13 and 15(d)

10. Income Taxes

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10. Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

10. Income Taxes

 

The Company did not provide any Federal and State income tax for the years ended December 31, 2017 and 2016 due to the Company’s net losses, other than $1,600 for the minimum state tax provision which was reported as part of operating expense in the accompanying statements of operations. A reconciliation of income taxes with the amounts computed at the statutory federal rate follows:

 

    December 31,  
    2017     2016  
Computed tax provision (benefit) at federal statutory rate (34%)   $ (546,000 )   $ (593,000 )
State income taxes, net of federal benefit (8.84%)     (142,000 )     (154,000 )
Valuation allowance     689,600       748,600  
Income tax provision   $ 1,600     $ 1,600  

  

The deferred tax assets and deferred tax liabilities recorded on the balance sheet are as follows:

 

    December 31,  
    2017     2016  
Net operating loss carry forwards   $ 14,746,000     $ 21,552,000  
Stock based compensation     (249,000 )     (181,000 )
Non-cash interest and financing expenses     (480,000 )     (663,000 )
Other temporary differences     (176,000 )     (81,000 )
Valuation allowance     (13,841,000 )     (20,627,000 )
Total deferred taxes net of valuation allowance   $     $  

 

As of December 31, 2017, the Company had net operating losses available for carry forward for state and federal tax purposes of approximately $53 million expiring through 2037. These carry forward benefits will be subject to annual limitations due to the ownership change limitations imposed by the Internal Revenue Code and similar state provisions. The annual limitation, if imposed, may result in the expiration of net operating losses before utilization.

 

As of December 31, 2017, the Company recorded a valuation allowance of $13,841,000 for its deferred tax assets since the Company believes that such assets did not meet the more likely than not criteria to be recoverable through projected future profitable operations in the foreseeable future. This valuation is based on the new federal corporate tax rate of 21% effective 2018 resulting in an effective bended state and federal tax rate of 28%.

 

Effective January 1, 2007, the Company adopted FASB guidance that addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The FASB also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2017 and 2016, the Company does not have a liability for unrecognized tax benefits.

 

The Company files income tax returns in the U.S. federal jurisdiction and the state of California. The Company is subject to U.S. federal or state income tax examinations by tax authorities for years after 2002. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these net operating losses and tax credit carry forwards may be utilized in future periods, they remain subject to examination. The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2017, the Company has no accrued interest or penalties related to uncertain tax positions. The Company believes that it has not taken any uncertain tax positions that would impact its consolidated financial statements as of December 31, 2017 and 2016.