Annual report pursuant to Section 13 and 15(d)

Income Taxes

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

Note 15—Income Taxes

 

Income tax provision for the year ended December 31, 2017 and the year ended December 31, 2016 consists of the following:

 

   

Year Ended December 31,

2017

   

Year Ended December 31,

2016

 
Current income tax expense:            
Federal   $     $  
State           3,000  
Total   $     $ 3,000  
Deferred income tax expense:                
Federal            
State            
Total   $     $  
Provision for income taxes   $    —     $ 3,000  

 

Due to net losses, effective tax rate for the periods presented was 0%.

 

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The valuation allowance increased by $1.3 million from December 31, 2016 to December 31, 2017.

 

   

December 31,

2017

   

December 31,

2016

 
Deferred tax assets:            
Net operating loss carry-forward   $ 18,380,000       17,057,000  
Valuation allowance     (18,380,000 )     (17,057,000 )
Net deferred tax assets   $     $  

 

A significant component of our deferred tax assets consisted of net operating loss carry-forwards. We have evaluated the available evidence supporting the realization of our deferred tax assets, including the amount and timing of future taxable income, and have determined it is more likely than not that the assets will not be fully realized and a full valuation allowance is necessary as of December 31, 2017 and 2016. As of December 31, 2017, we have federal and state net operating loss carry-forwards of approximately $33.1 million and $32.6 million, respectively, which expire through 2032. The utilization of net operating loss carry-forwards may be subject to limitations under provision of the Internal Revenue Code Section 382 and similar state provisions.

 

We follow ASC 740 related to accounting for uncertain tax positions, which prescribes a recognition threshold and measurement process for recording in the financial statements, uncertain tax positions taken or expected to be taken in a tax return. Under this provision, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits. We did not have any uncertain income tax position as of December 31, 2017 and 2016. Since we have incurred net operating losses in every tax year since inception, all of our income tax returns are subject to examination and adjustments by the IRS for at least three years following the year in which the tax attributes are utilized.

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Act"). The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction is effective on January 1, 2018. As a result of the rate reduction, we have reduced the deferred tax asset balance as of December 31, 2017 by $6.4 million. Due to our full valuation allowance position, there was no net impact on our income tax provision during the year ended December 31, 2017 as the reduction in the deferred tax asset balance was fully offset by a corresponding decrease in the valuation allowance.

 

In conjunction with the Act, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. We have recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities at December 31, 2017. There was no net impact on our consolidated financial statements as of and for the year ended December 31, 2017 as the corresponding adjustment was made to the valuation allowance. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Act.