Processa Pharmaceuticals, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes Disclosure

Income Taxes Disclosure

12 Months Ended

Dec. 31, 2015

9. INCOME TAXES:

The Company and its predecessor file income tax returns in the U.S. federal jurisdiction and in the states of Colorado, Utah, North Dakota and California. There are currently no income tax examinations underway for these jurisdictions. The Company filed its initial tax returns for the nine months ended December 31, 2011 with federal and Utah and December 31, 2012 is the initial tax filing period for Colorado, and December 31, 2013 is the initial tax filing period for North Dakota and California.

The Company provides deferred income taxes for differences between the tax reporting bases and the financial reporting bases of assets and liabilities. The Company had no unrecognized income tax benefits. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense and operating expense, respectively. Unrecognized tax benefits are not expected to increase or decrease within the next twelve months.

As of December 31, 2015, the Companys tax year for 2012, 2013 and 2014 are subject to examination by the tax authorities.

Deferred Income Taxes - The Company does not recognize the deferred income tax asset at this time because the realization of the asset is less likely than not. As of December 31, 2015 and 2014, the Company has net operating losses for federal and state income tax purposes of approximately $12,761,702 and $12,074,903, respectively, which are available for application against future taxable income and which will start expiring in 2031. The benefit associated with 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 net operating losses have not been recorded in the financial statements.

	December 31, 2015		December 31, 2014
Deferred Tax Assets:
Current
Net operating loss carry forward - Federal	$	4,338,979	$	2,851,493
Net operating loss carry forward - State		598,096		343,854
Contribution carry forward		199		199
Stock-based compensation		225,162		196,495
Accrued liabilities and deferred rent		1,519		15,139
Total current deferred tax assets		5,163,955		3,407,180

Noncurrent
Depreciation		(16,533)		(117,275)
Amortization		--		272,507
Total noncurrent deferred tax (liabilities)/assets		(16,533)		155,232
Total net deferred tax assets		5,147,422		3,562,412
Valuation allowance for deferred tax asset		(5,147,422)		(3,562,412)
Total deferred tax assets	$	-	$	-

A reconciliation between the statutory federal income tax rate of 34% and our effective tax rate for the years ended December 31, 2015 and 2014, are as follows:

	Year ended December 31, 2015	Year ended December 31, 2014
Federal statutory income tax rate	34.0%	34.0%
Permanent differences	7.5%	(6.8)%
Deferred tax asset valuation allowance	(48.7)%	(30.6)%
Redeterminations/Other	7.2%	3.4%
Effective income tax rate	-	-