Given our historical losses from operations, income taxes have been limited to the minimum franchise tax assessed by the State of California.
At
December 31, 2017,
we had federal and California tax net operating loss carry-forwards (“NOLs”) of approximately
$52.9
million. Due to changes in our ownership through various common stock issuances during
2002
and
2007,
the utilization of NOLs
may
be subject to annual limitations and discounts under provisions of the Internal Revenue Code. We have
not
conducted a complete analysis to determine the extent of these limitations or any future limitation. Such limitations could result in the permanent loss of a significant portion of the NOLs. Given the impact of the Tax Cuts and Jobs Act signed into law on
December 22, 2017,
the future expected corporate tax rate was reduced to
21%.
Accordingly, the Company remeasured its deferred tax asset for these NOLS. Management
’s best estimate of the NOL deferred tax asset is
$11.1
million for federal, and
$4.6
million for California. Additionally, NOLs expire after
20
years. As such, ours will begin to expire in
2021.
Realization of our deferred tax assets, which relate to operating loss carry-forwards and timing differences, is dependent on future earnings. The timing and amount of future earnings are uncertain and therefore we have established a
100%
valuation allowance.
At
December 31,
2017,
our U.S. Federal and California State income tax returns related to the years
–
remain open to examination by tax authorities. However, given our history of net operating losses, as discussed above, the statute of limitations could remain open to examine years prior to
2007
for the year(s) in which net operating losses were originally incurred if or when we reach profitability and begin to utilize our net operating losses to offset taxable income.