Note 5 – Income Taxes:
A summary of income taxes as follows:
|
|
|
December 31, |
|
||||||||
|
2017 |
|
|
2016 |
|
|
2015 |
|
||||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
75,195 |
|
|
|
65,754 |
|
|
|
57,516 |
|
|
|
$ |
75,195 |
|
|
$ |
65,754 |
|
|
$ |
57,516 |
|
The provisions for income taxes do not bear a normal relationship to loss before income taxes primarily as a result of the valuation allowance on deferred tax assets.
The reconciliation of the statutory federal income tax rate to the Company’s effective tax is presented below:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Tax at federal statutory rate |
|
|
34.00 |
% |
|
|
34.00 |
% |
|
|
34.00 |
% |
|
Impact of 2017 Tax Act |
|
|
445.05 |
|
|
|
— |
|
|
|
— |
|
|
State taxes, net of federal |
|
|
(0.42 |
) |
|
|
1.95 |
|
|
|
0.95 |
|
|
Permanent items |
|
|
(5.94 |
) |
|
|
(3.19 |
) |
|
|
(1.33 |
) |
|
Other |
|
|
(0.17 |
) |
|
|
0.54 |
|
|
|
(0.09 |
) |
|
Valuation allowance |
|
|
(474.34 |
) |
|
|
(35.43 |
) |
|
|
(35.11 |
) |
|
Effective tax rate |
|
|
(1.83 |
)% |
|
|
(2.13 |
)% |
|
|
(1.58 |
)% |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
In assessing the realizability of the net deferred tax assets, the Company considers all relevant positive and negative evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. The Company believes that it is more likely than not that the Company’s deferred income tax assets will not be realized. The Company has experienced taxable losses from inception. As such, there is a full valuation allowance against the net deferred tax assets as of December 31, 2017 and 2016.
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Net operating loss |
|
|
42,484,665 |
|
|
|
59,491,094 |
|
|
Stock option expense |
|
|
235,994 |
|
|
|
3,155,006 |
|
|
Property and equipment |
|
|
(8,635,268 |
) |
|
|
(10,400,982 |
) |
|
Other |
|
|
680,480 |
|
|
|
981,050 |
|
|
Less: Valuation allowance |
|
|
(34,765,871 |
) |
|
|
(53,226,168 |
) |
|
Net deferred tax |
|
|
— |
|
|
|
— |
|
At December 31, 2017, the Company had federal net operating loss (“NOL”) carryforwards of $174,951,283, which expire between 2025 and 2037. The Company may be subject to the net operating loss utilization provisions of Section 382 of the Internal Revenue Code. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carry forwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Although we have not completed an analysis under Section 382 of the Code, it is likely that the utilization of the NOLs will be limited. At December 31, 2017, the Company had $143,444,509 of State NOLs which expire between 2017 and 2037, and had $1,657,143 of foreign NOLs which do not expire.
Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2017, there were, no uncertain positions. The Company’s U.S. federal and state net operating losses have occurred since its inception in 2005 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. The Company did not have any unrecognized tax benefits and has not accrued any interest or penalties through 2017.
Net deferred tax assets and liabilities are summarized as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Total deferred tax assets |
|
$ |
43,401,139 |
|
|
$ |
63,627,150 |
|
|
Total deferred tax liabilities |
|
|
(8,635,268 |
) |
|
|
(10,400,982 |
) |
|
Valuation allowance |
|
|
(34,765,871 |
) |
|
|
(53,226,168 |
) |
|
Net deferred income tax assets |
|
$ |
— |
|
|
$ |
— |
|
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 34% to 21% for tax years beginning after December 31, 2017, which will result in a reduction of approximately $18.9 million for the deferred tax assets related to net operating losses and other assets, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The 2017 Tax Act had no impact on tax expense primarily due to us maintaining a full valuation allowance against our net deferred tax assets.
On December 22, 2017, 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 in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. We did not identify items with the exception of Internal Revenue Code Section 162(m) noted below for which the income tax effects of the 2017 Tax Act have not been completed and could not be reasonably estimated as of December 31, 2017, and as such, our financial results reflect the income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 is complete.
The Company is in the process of considering the impact of the disallowance of certain incentive based compensation tax deductibility under Internal Revenue Code Section 162(m) however to the extent an adjustment to the deferred tax asset is required the impact will be offset by a corresponding adjustment to the valuation allowance.