|12 Months Ended|
Dec. 31, 2017
|Income Taxes [Abstract]|
9. Income Taxes
For the years ended December 31, 2017 and 2016 the provisions for income taxes were as follows:
Under ASC 740, deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our net deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
The Company has provided a valuation allowance against deferred tax assets recorded as of December 31, 2017 and 2016 due to uncertainties regarding the realization of such assets.
The net change in the total valuation allowance for the year ended December 31, 2017 was a decrease of approximately $5,413,000. The net change in the total valuation allowance for the year ended December 31, 2016 was an increase of approximately $3,687,000. In assessing the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and projections for the taxable income for the future, the Company has determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to zero. There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards, either due to ongoing operating losses or due to ownership changes, which limit the usefulness of the loss carryforwards.
As of December 31, 2017, the Company has available net operating loss carryforwards of approximately $36,000,000 for federal income tax purposes, which will start to expire in 2026. The net operating loss carryforwards for state purposes are approximately $34,000,000 and will start to expire in 2018.
The difference between the provision for income taxes and income taxes computed using the U.S. federal income tax rate for the years ended December 31, 2017 and 2016 was as follows:
The Company has determined that during 2010 it experienced a “change of ownership” as defined by Section 382 of the Internal Revenue Code. As such, utilization of net operating loss carryforwards and credits generated before the 2010 change in ownership will be limited to approximately $207,000 per year until such carryforwards are fully utilized. The pre change net operating loss carryforward was approximately $6,000,000.
The Company files income tax returns in the U.S. federal jurisdiction Arizona and California. It also files income tax returns in Nova Scotia, Canada. Because the Company is carrying forward federal and state net operating losses from 2006, the Company is subject to U.S. federal and state income tax examinations by tax authorities for all years since 2006. The Company does not have a liability for any uncertain tax positions. As of December 31, 2017, no accrued interest or penalties are recorded in the financial statements.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental changes to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. As a result, the Company re-measured its deferred tax assets and deferred tax liabilities at the new lower corporate income tax rate and reduced its net deferred tax assets by $7,657,000, with a corresponding net adjustment to the valuation allowance of $7,657,000 for the year ended December 31, 2017.
The TCJA also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of certain of the Company’s foreign subsidiaries as of December 31, 2017. To determine the amount of this transition tax, the Company must determine the amount of earnings generated since inception by the relevant foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings, in addition to potentially other factors. The Company believes that no such tax will be due, as its foreign subsidiaries have accumulated significant losses.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef