The Company
’s deferred tax assets consisted of the effects of temporary differences attributable to the following:
| | | | |
| | | | | | | |
| Deferred Tax Asset | | | | | | | | |
| Net-operating loss carryforward | | $ | 4,350 | | | $ | 9,648 | |
| Unrealized gain on investment | | | — | | | | (5,633 | ) |
| Stock-based compensation | | | 1,433 | | | | 2,532 | |
| Others | | | (25 | ) | | | (40 | ) |
| Total Deferred Tax Assets | | | 5,758 | | | | 6,507 | |
| Valuation Allowance | | | (5,758 | ) | | | (6,507 | ) |
| Deferred Tax Asset, Net of Allowance | | $ | — | | | $ | — | |
As of
December 31,
201
7,
the Company had federal and state net operating loss carryovers of approximately
$10.2,
which will begin to expire in
2033.
The Tax Reform Act of
1986,
and certain state tax statutes, limit the utilization of net operating loss and tax credit carryforwards to offset future taxable income and tax, if there has been a
“
change of ownership
”
as defined within Section
382
of the Internal Revenue Code (“IRC”), and under similar state provisions. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change. We will continue to evaluate future events that could limit our ability to utilize our net operating losses and tax credit carryforwards in future years. The Company has performed an analysis of ownership pursuit to the guidance issued under Section
382
of the IRC though
December 31, 2016.
Based on the analysis, the Company has
not
experienced a
“
change of ownership
”
as of the year ended
December 31, 2016.
The Company utilized the analysis methodology related to its
2017
stock activity and determined that such activity also did
not
cause a
“
change of ownership
”
, effective through
December 31, 2017,
and therefore, utilization of the Company losses and credits will
not
be limited. Management will continue to evaluate future events that could limit our ability to utilize our net operating losses and tax credit carryforwards in future years.
In assessing the realization of deferred tax assets, management considers whether it is more likely than
not
that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and taxing strategies in making this assessment. The Company has determined that, based on objective evidence currently available, it is more likely than
not
that the deferred tax assets will
not
be realized in future periods. Accordingly, the Company has provided a valuation allowance for the full amount of the deferred tax assets at
December 31,
201
7
and
2016.
Tax years ended
December 31, 2014,
2015
and
2016,
remain open to examination by the Internal Revenue Service.
The expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:
| | | For the Years Ended December 31, | |
| | | | | | | |
| Statutory Federal Income Tax Rate | | | 34.0 | % | | | 34.0 | % |
| State Taxes, Net of Federal Tax Benefit | | | (9.4 | )% | | | 5.9 | % |
| Change in Federal Rate | | | (213.4 | )% | | | — | |
| Return to Provision | | | (1.4 | )% | | | — | |
| Change in Valuation Reserve | | | 117.1 | % | | | (39.9 | )% |
| Permanent items and other | | | 3.2 | % | | | — | |
| Income Tax Provision | | | (69.9 | )% | | | 0.0 | % |
| | | For the Years Ended December 31, | |
| | | | | | | |
| Federal | | | | | | | | |
| Current | | $ | 273 | | | $ | — | |
| Deferred | | | 1,753 | | | | 5,660 | |
| State | | | | | | | | |
| Current | | | 93 | | | | — | |
| Deferred | | | (1,010 | ) | | | 1,005 | |
| Income Tax Provision (Benefit) | | | 1,109 | | | | 6,665 | |
| Valuation allowance | | | (743 | ) | | | (6,665 | ) |
| Income Tax Provision (Benefit), net of valuation allowance | | $ | 366 | | | $ | — | |
The Company accounts for uncertain tax positions in accordance with the provisions of ASC
740.
When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than
not
be realized. The determination as to whether the tax benefit will more likely than
not
be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. As of
December 31,
201
7
and
2016,
the Company does
have any significant uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
The Act signed into law in
December 2017,
makes broad and complex changes to the U.S. tax code including, but
not
limited to: (
1
) reducing the U.S. rate from
35%
to
21%
(
2
) eliminating the corporate
minimum tax (AMT) and changing how the credits can be realized and (
3
) creating new limitations on deductions for interest expense and (
4
) changing rules related to limitations of net operating loss carryforwards for years beginning after
December 31, 2017.
The law change will also result in many tax accounting issues as its most significant change relates to a significant corporate rate reduction. The Act reduces the corporate tax rate to
21%,
effective
January 1, 2018.
Under ASC
740,
the effects of new legislation are recognized upon enactment, which is the date the president signs a bill into law. Accordingly, recognition of the tax effects of the Act is required in the interim and annual periods that include
December 22, 2017.
After enactment, the SEC issued SAB
118,
which provides guidance on accounting for the Act's income tax reporting impact. Under SAB
118,
an entity would be required to include qualit
ative information about the income tax effects of the Act and disclose existing current or deferred tax amounts also effected. Management has reviewed the effect of the new law and the implementation of SAB
118
and has recorded the remeasurements of deferred taxes and the valuation allowance and other tax liabilities and are included in the provision amounts. The change in the Federal rate as a result of the Act is reflected as a discrete item within the rate reconciliation and the effect of the deferred taxes is also included in the deferred tax and valuation allowance.