XML 112 R14.htm IDEA: XBRL DOCUMENT v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 7 – INCOME TAXES

 

The Company files income tax returns in the U.S. federal jurisdiction and in the state of Maryland. There are currently no income tax examinations underway for these jurisdictions.

 

The Company provides deferred income taxes for differences between the tax reporting bases and the financial reporting bases of assets and liabilities at the enacted tax rates. The Company determined that it was not required to record a liability related to uncertain tax positions as a result of implementing the requirements of ASC 740-10-25 Income Taxes. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense and general and administrative expense, respectively. The liability related to uncertain tax positions is not expected to increase or decrease within the next twelve months.

 

As of December 31, 2017, the Company’s tax year for 2016, 2015 and 2014 are subject to examination by the Internal Revenue Service and the state taxing authorities of Maryland, Colorado, Utah, North Dakota and California.

 

As discussed in Note 2 – Income Taxes, the historical information presented in the financial statements is that of Promet. Prior to the closing of the asset purchase transaction on October 4, 2017, Promet was treated as a partnership for federal income tax purposes and thus the partners were taxed separately on their proportionate share of Promet’s income, deductions, losses and credits. Therefore, no provision or liability for income taxes has been included in these financial statements through the date of the asset purchase on October 4, 2017.

 

In addition, as a result of the asset purchase transaction, Promet was issued 90 percent of the total issued and outstanding common stock of Heatwurx, including the shares issued to Promet. The transaction resulted in an ownership change as defined by Internal Revenue Code Section 382. The net deferred tax assets of Heatwurx, prior to the asset purchase transaction, were principally federal and state net operating loss carry forwards. The Heatwurx net deferred tax assets were fully reserved with a valuation allowance.

 

The Company has no current federal or state tax provision recognized in the consolidated financial statements. Since the asset purchase transaction, the Company has incurred operating losses of approximately $606,400. The total deferred tax asset as of December 31, 2017 includes approximately $347,500 ($95,632 net of tax) of general and administrative expenses treated as deferred start-up expenditures for tax purposes and approximately $258,600 ($71,155 net of tax) of tax losses resulting in tax loss carryforwards. The Company has had no revenues and recognized cumulative loses since inception. Due to the uncertainty regarding future profitability and recognition of taxable income to utilize the amortization of deferred start-up expenditures and the tax loss carryforwards, a full valuation allowance against any potential deferred tax assets has been recognized for the year ended December 31, 2017 as discussed below.

 

As of December 31, 2017, the Company is evaluating its qualified research expenditures for application to federal and state research and development tax credits to offset potential future tax liabilities. The federal research and development tax credits have a 20-year carryforward period. The Maryland research and development tax credits have a 7-year carryforward period. There is no recognition of a deferred tax asset for research and development tax credits as of December 31, 2017.

 

The Company is subject to U.S. Federal and state income taxes. The provision (benefit) for income taxes for the tax years ended December 31, 2017 and 2016 are as follows:

 

    Years Ended December 31,  
    2017     2016  
Current:                
Federal   $ -     $ -  
State     -       -  
Total current     -       -  
                 
Deferred:                
Federal     (116,783 )     -  
State     (50,004 )     -  
Total deferred tax benefit     (166,787 )     -  
Valuation allowance     166,787       -  
Net deferred tax benefit     -       -  
                 
Total tax provision (benefit)   $ -     $ -  

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law. Among its provisions, the TCJA reduces the statutory U.S. Corporate income tax rate from 34% to 21% effective January 1, 2018. The TCJA includes provisions that, in certain instances, impose U.S. income tax liabilities on future earnings of foreign subsidiaries and limit the deductibility of future interest expenses. The TCJA also provides for accelerated deductions of certain capital expenditures made after September 27, 2017 through bonus depreciation and an indefinite tax loss carryforward period for losses incurred after December 31, 2017. However, these tax loss carry forwards can only offset 80 percent of future taxable income. Losses incurred prior to January 1, 2018 continue to carry forward for twenty years. The application of the TCJA may change due to regulations subsequently issued by the U.S. Treasury Department.

 

Upon the enactment of the TCJA, we recorded a reduction in our deferred income tax assets of approximately $72,300 for the effect of the aforementioned change in the U.S. statutory income tax rate with an offsetting decrease in the valuation allowance established against the deferred tax assets. As a result, there was no change or recognition of an income tax provision or benefit in the consolidated statement of operations for the year ended December 31, 2017.

 

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (“SAB 118”) to provide clarification in implementing the TCJA when registrants do not have the necessary information available to complete the accounting for an element of the TCJA in the period of its enactment. SAB 118 provides for tax amounts to be classified as provisional and subject to remeasurement for up to one year from the enactment date for such elements when the accounting effect is not complete, but can be reasonably estimated. We consider our estimates of the tax effects of the TCJA on the components of our tax provision to be reasonable and no provisional estimates subject to remeasurement will be necessary to complete the accounting.

 

Deferred Income Taxes - The Company does not recognize the deferred income tax asset at this time because the realization of the asset is not more-likely-than-not. As of December 31, 2017, the Company had deferred start-up expenditures and net operating losses for both federal and state income tax purposes of approximately $166,787 as described above. As of December 31, 2016, the Company had no net operating losses for federal and state income tax purposes since Promet’s partners were taxed separately on their proportionate share of Promet’s income, deductions, losses and credits.

 

The net operating losses are available for application against future taxable income for 20 years, expiring in 2037. The benefit associated with the amortization of the deferred start-up expenditures and the net operating loss carry forward will more-likely-than-not go unrealized unless future operations are successful. Since the success of future operations is indeterminable, the potential benefits resulting from these deferred tax assets have not been recorded in the financial statements.

 

    December 31, 2017     December 31, 2016  
Deferred Tax Assets:                
Non-current                
Net operating loss carry forward - Federal   $ 49,822     $ -  
Net operating loss carry forward - State     21,333       -  
Start-up expenditures and amortization     95,632       -  
Total non-current deferred tax assets     166,787       -  
Valuation allowance for deferred tax assets     (166,787 )     -  
Total deferred tax assets   $ -     $ -  

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. Based on management’s analysis, a full reserve has been established against this asset. The change in the valuation allowance in 2017 and 2016 was $166,787 and $0, respectively.

 

A reconciliation of the Company’s effective income tax rate and statutory income tax rate at December 31, 2017 and 2016 is as follows:

 

    December 31, 2017     December 31, 2016  
Federal statutory income tax rate     34.00 %     0.00 %
State tax rate, net     5.45 %     0.00 %
Permanent differences     -0.02 %     0.00 %
Impact of change in federal income tax rates     -11.92 %     0.00 %
Deferred tax asset valuation allowance     -27.51 %     0.00 %
Effective income tax rate     0.00 %     0.00 %