NOTE

– INCOME TAXES

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Tax Reform Act was enacted

December 22, 2017.

Effective

January 1, 2018,

the Tax Reform Act reduced corporate income tax rates from

34%

21%.

Other changes effect operating loss carry-forwards and carrybacks, as well as a repeal of the corporate alternative minimum tax. As a result of the Tax Reform Act, deferred tax assets and liabilities were re-measured to account for the lower tax rates. There was

income tax impact from the re-measurement due to the

100%

valuation allowance on the Company’s deferred tax assets.

There is

federal or state income tax provision in the accompanying statements of operations due to the cumulative operating losses incurred and

100%

valuation allowance for the deferred tax assets.

During

September 2013,

the Company experienced an "ownership change" as defined in Section

382

of the Internal Revenue Code which could potentially limit the ability to utilize the Company’s net operating losses (NOLs). The Company

may

have experienced additional “ownership change(s)” since

September 2013,

but a formal study has

not

yet been performed. The general limitation rules allow the Company to utilize its NOLs subject to an annual limitation that is determined by multiplying the federal long-term tax-exempt rate by the Company’s value immediately before the ownership change.

December 31, 2017,

the Company had approximately

$34.5

million of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in

2018,

subject to the Section

382

limitation described above. The federal NOLs will expire beginning in

2022

if unused. The Company also had approximately

$12.2

million of gross NOLs to reduce future state taxable income at

December 31, 2017.

The state NOL’s will expire beginning in

2017

if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At

December 31, 2017,

the federal and state valuation allowances were

$7.4

million and

$0.2

million, respectively.

March 31, 2018,

the Company had approximately

$36.1

million of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in

2018,

subject to the Section

382

limitation described above. The federal NOLs will expire beginning in

2022

if unused. The Company also had approximately

$12.4

million of gross NOLs to reduce future state taxable income at

March 31, 2018.

The state NOL’s will expire beginning in

2017

if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At

March 31, 2018,

the federal and state valuation allowances were

$7.7

million and

$1.0

million, respectively.

The valuation allowance has been recorded due to the uncertainty of realization of the benefits associated with the net operating losses. Future events and changes in circumstances could cause this valuation allowance to change.

The components of deferred income taxes at

March 31, 2018

and

December 31, 2017

are as follows:

	March 31, 2018		December 31, 2017

Deferred Tax Asset:
Net Operating Loss	$	8,554,404	$	7,393,000
Other		192,522		215,843
Total Deferred Tax Asset		8,746,926		7,608,943
Less Valuation Allowance		8,746,926		7,608,943
Net Deferred Income Taxes	$	—	$	—