Entity information:

• Entity registrant name: BSQUARE CORP /WA
• CIK: 0001054721
• SEC filing page: http://www.sec.gov/Archives/edgar/data/1054721/000156459018002910/0001564590-18-002910-index.htm
• XBRL Instance: http://www.sec.gov/Archives/edgar/data/1054721/000156459018002910/bsqr-20171231.xml
• XBRL Cloud Viewer: https://edgardashboard.xbrlcloud.com/flex/viewer/XBRLViewer.html#instance=http://www.sec.gov/Archives/edgar/data/1054721/000156459018002910/bsqr-20171231.xml
• EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001054721
• Generator: Donnelley Financial Solutions
• Total assets: 49,434,000
• Income tax expense (benefit): -149,000
• Found reconcilation from statutory to effective rates: True
• Found income tax policy: Coming soon!

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Pre-tax loss consisted of the following (in thousands):   

 

Income tax benefit (expense) consisted of the following (in thousands):  

  

Net deferred tax assets and liabilities consisted of the following (in thousands):   

  

Net deferred tax assets and liabilities were recorded as follows (in thousands):   

 

The Tax Cuts and Jobs Act was enacted on December 22, 2017 (the “Tax Act”) and introduces significant changes to U.S. income tax law. Our accounting for the elements of the Tax Act that were effective for 2017 is complete and its impact is reflected in our 2017 consolidated financial statements.

The Tax Act reduces the US federal corporate tax rate from 35% in 2017 to 21% beginning in 2018. The anticipated impact of the Tax Act for us is an $8.9 million reduction in our net deferred tax assets to reflect the new statutory rate. The rate adjustment to the deferred tax assets, a discrete item for the quarter, was fully offset by a decrease in the valuation allowance so there is no rate impact to us.

Effective in 2018, companies may be subject to global intangible low tax income (“GILTI”) which is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. GILTI will be effectively taxed at a tax rate of 10.5%. Due to the complexity of the GILTI tax rules, companies are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred taxes. We are electing to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred, and therefore there was no impact to our deferred tax rate in 2017.

As of December 31, 2017, our deferred tax assets were primarily the result of U.S. net operating loss, research and development credit carryforwards and stock-based compensation expense. We have applied a full valuation allowance against the U.S. deferred tax assets in the U.S. and foreign jurisdictions.

We use judgment as to the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances. As part of this analysis, we examine all available evidence on a jurisdiction-by-jurisdiction basis and weigh the positive and negative information when determining the need for full or partial valuation allowances. The evidence considered for each jurisdiction includes, among other items, (i) the historical levels of income or loss over a range of time periods that extends beyond the two years presented, (ii) the historical sources of income and losses, (iii) the expectations and risk associated with underlying estimates of future taxable income, (iv) the expectations and risk associated with new product offerings and uncertainties with the timing of future taxable income, and (v) prudent and feasible tax planning strategies. Based on the analysis conducted as of December 31, 2017, we determined that we would not release, in full or in part, the valuation allowance against our U.S. gross deferred tax assets.

 

The provision for income taxes differed from the amount of expected income tax expense determined by applying the applicable U.S. statutory federal income tax rate to pre-tax loss as follows (in thousands, except percentages):   

  

At December 31, 2017, we had approximately $61.6 million of federal and $4.4 million of state net operating loss carryforwards, which have begun to expire, including approximately $1.2 million of state losses which will expire in 2026. Of the federal net operating loss carryforwards, approximately $36.3 million will expire in 2022 and 2023. We also have approximately $3.0 million of tax credit carryforwards, which begin to expire in 2018. Use of these carryforwards may subject us to an annual limitation due to Section 382 of the U.S. Internal Revenue Code that restricts the ability of a corporation that undergoes an ownership change to use its carryforwards. Under the applicable tax rules, an ownership change occurs if holders of more than five percent of an issuer’s outstanding common stock, collectively, increase their ownership percentage by more than 50 percentage points over a rolling three-year period. We have performed analyses of possible ownership changes in the past, which included consideration of third-party studies, and do not believe that an ownership change of more than 50 percentage points has occurred.

We have evaluated all the material income tax positions taken on our income tax filings to various tax authorities, and we determined that we did not have unrealized tax benefits related to uncertain tax positions recorded at December 31, 2017 or 2016.

Because of net operating loss and tax credit carryforwards, substantially all of our tax years remain open and subject to examination.